KUALA LUMPUR: Inflation is forecasted to increase to 2.7 percent next year, influenced by factors like the RON95 subsidy reform and higher minimum wages.
As for this year, Hong Leong Investment Bank Bhd (HLIB Research) anticipates that inflation will stay relatively modest for the next two months.
"However, we anticipate price pressures to increase next year due to factors such as the RON95 subsidy reform, the expanded sales and service tax (SST) scope, the civil servant wage hike, and the increase in minimum wages.
"Additionally, US President-elect Donald Trump's proposed tariff and immigration policies could reignite global price pressures. We maintain our expectation for the consumer price index (CPI) to trend higher at 2.7 per cent year-on-year (YoY) in 2025," it said in a note.
Headline inflation inched higher to 1.9 per cent YoY in October, slightly above the consensus estimate of 1.8 per cent YoY.
On a YoY basis, inflation was driven by higher growth in food and beverages and personal care, offsetting the moderations in furnishing, household equipment and maintenance, transport, and restaurants and hotels.
In a separate note, CIMB Securities Sdn Bhd said that the headline inflation is on track to meet its full-year forecast of 1.9 per cent YoY, the lowest since 2020.
"For 2025, the risk to inflation outlook is tilted to the upside amid further tax and subsidy reforms, of which we believe the retargeting of RON95 subsidies from mid-2025, alongside a 13 per cent YoY increase in the minimum wage from RM1,500 to RM1,700 from February 2025, are likely to have a greater bearing on the inflation trajectory compared to other policy measures.
"The benign inflation impact from the service tax hike in March 2024, where the CPI weightage for services is 53.7 per cent, indicates the cost pass-through of a potential sales tax hike on nonessential items planned for May 2025 may likely be manageable," it said in a note.
Moving forward, the firm expects headline inflation to accelerate to 2.7 per cent YoY in May 2025 and hit a high of 3.0 per cent in September 2025.
Its full-year forecast remains unchanged at 2.6 per cent in 2025, with the overnight policy rate expected to stay unchanged at 3.00 per cent throughout the year.
"Economy Minister Rafizi Ramli guided that a two-tier pricing mechanism will be implemented for the targeted RON95 subsidies as it poses less risk to inflation compared to the cash transfer mechanism, whereas Deputy Domestic Trade and Cost of Living Minister Fuziah Salleh noted that factors such as the size of household, number of dependents, employment status, the number of cars will be taken into consideration in determining the eligibility of RON95 subsidies.
"Furthermore, moderating producer price inflation may limit the extent of cost pressure heading into 2025," it added.